Letter: No real reason to cry in your beer

The Telegram

Published: Jan 30 at 6 a.m.

Updated: Jan 30 at 8:54 a.m.

"Beer Canada, the industry’s trade association, has recently launched a campaign to get people frothing at the mouth about the upcoming inflation adjustment," Prof. Rod Hill writes. — 123RF Stock Photo

“Taxes are the price we pay for a civilized society,” as American Supreme Court Justice Oliver Wendell Holmes wrote 100 years ago. When a country can no longer have an adult conversation about taxes, is its civilization in danger? We had better hope not, because that seems to be the situation in Canada now.

The subject of my concern about our future is the nonsense being foisted on the public about the federal excise tax on beer. A sad example was the editorial “Going Up” (Jan. 23).
It correctly states the facts and then promptly misinterprets them. Last year’s federal budget did indeed build “a constant increase to the tax, an increase tied to the consumer price index,” as the editorial notes.

But it then describes this as “a sneaky way to increase taxes without actually having to tell anyone you’re doing it.” The legislation is “institutionalizing tax increases” with consumers paying “constantly increasing” amounts to the government. It concludes: “When a government increases a tax, it has to justify that increase.”

In fairness, the editorial writer was simply echoing the false arguments that have been made since last spring when the budget changes were announced.

Let’s see what’s wrong with the claim that the tax is going up and up.

First, a bit of background. The federal excise tax on beer is set in dollar terms per hundred litres of beer. It offers very substantial reductions to smaller breweries that face higher costs of production compared with large industrial operations.

Large breweries currently pay 15.9 cents per 500 millilitre bottle of beer. (Smaller breweries pay between 1.6 cents and 13.5 cents, depending on their annual production.)

The tax will rise on April 1 at the rate of inflation. If that is two per cent, the tax on that bottle will rise to 16.2 cents.

Is this a “tax hike”? To see why it isn’t, consider a more familiar situation first.

If your wage rises by two per cent, are you better off? If the prices of the things you buy also rise by two per cent, your purchasing power is unchanged.

In the same way, if the tax on beer rises at the same rate as inflation, the government is taking no more purchasing power from you than it did before. In economists’ terminology, when adjusted for inflation the real value of the tax is unchanged.

How does the current tax compare with what it was in the past?

Adjusted for inflation, the tax on a 500 ml bottle was 19 cents in 1976, 18 cents in 1987, 19.5 cents in 1999. At just under 16 cents, it is the lowest it’s been in 40 years. Last year’s budget will keep it at that low level into the indefinite future.

But the facts don’t seem to matter.

Last spring, the Senate responded to the uproar about the inflation adjustment to the beer tax. The Chamber of Sober Second Thought (as John A. Macdonald called it) became drunk with delusions of power and attempted to strike this from the budget, but without success. (The House of Commons has ultimate authority over budgets.)

According to one report, “a number of senators expressed concern that the automatic yearly tax hikes would potentially devastate many small Canadian breweries and wineries.” Finance Minister Bill Morneau had already explained to them that the adjustments involved no real increase, but to no avail.

Beer Canada, the industry’s trade association, has recently launched a campaign to get people frothing at the mouth about the upcoming inflation adjustment. It pretends this will leave beer drinkers “faced with higher prices because of higher taxes. That’s not favourable for sales,” says its president, Luke Harford, who adds “Brewers are going to be left with less money to invest in their plants, their people and their communities.” These groundless complaints are being uncritically reported by the media across the country.

Oh well. On the bright side, new craft breweries are flourishing across the country. We can contemplate the shaky future of our civilized society over glasses of their fine products.

Rod Hill, professor of economics
University of New Brunswick
Saint John, N.B.